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Mortgage rates moved lower for a second straight dayfollowing a much-anticipated speech from Federal Reserve Chair Yellen in Jackson Hole. While she didn't break any new ground in terms of what we should expect from Fed policy, there was some temporary volatility in the markets that underlie mortgage rates late this morning.

Headlines concerning Ukraine/Russia tension and European market movements all contributed, but by early afternoon, it was all for naught. Bond markets (which include the mortgage-backed-securities that dictate mortgage rates), settled down significantly as the day progressed, leaving the average lender in slightly better shape compared to yesterday's latest levels.

In the bigger picture, rates are still very near their lowest levels of the year. While Freddie Mac reported that this was the case yesterday (i.e. lowest rates of the year), it was only the case due to the limitations in their survey methodology. The last week in May and the first week in June both saw noticeably lower rates. In fact, even last week itself--which ended with a strong move lower on Friday (not counted in the Freddie Survey)--was just slightly lower on average. That said, at any given moment during this week, chances are good you'd be looking at the same rates as the first for days of last week.

The point is that mortgage rates aren't really improving beyond a certain lower bound. They're close to the best levels of the year, but progress to new lows has been at a standstill for nearly three months! While this COULD change any time, until and unless it does, the short term rewards for floating are outweighed by the risk. Longer term floating requires a bit of fortitude as its merits could only really be ruled out if rates moved quite a bit higher. That's because there's "room" for rates to move higher withoutviolating the trend of improvement that's been in place in 2014.

Loan Originator Perspective

"After a week filled with market moving date rates ended the week for the
most part flat. I do expect given the shift in the Feds language about
the economy we may see more volatility as economic date is released.
It does appear to be safe to float into the weekend but do keep a close
eye on the data as it comes out next week." -Manny Gomes, Branch Manager, Norcom Mortgage

"Amazinly, we've had another day with little to no movement, higher or
lower. How long can this last? Well, it's already remained at this
level for far longer than I'd ever imagined, so with each passing day
the risk grows for a strong move in one direction or the other. Until
we get significant news that could/would drive rates lower, the highest
likelihood is toward higher rates. I'd strongly recommend locking." -Brent Borcherding, brentborcherding.com

"Geopolitical risk has heated up again leading to positive inflows into
treasuries and mortgage backed securities. Today's drama is brought to
us by Russia illegally sending a convoy of "aide" into eastern Ukraine.
This issue doesn't seem like it will be solved quickly and could
escalate very quickly. With MBS higher on the day and only a few
lenders have passed along improvements, i would continue to float until
Monday. As always, if you are happy with the current terms of your
offer, go ahead and lock today but wait until later to allow time for
your lender to reprice for the better." -Victor Burek, Open Mortgage

"A bit of Ukrainian Drama today generated some modest gains for rates,
and helped offset earlier Fed statements from their Jackson Hole summit.
As of mid PM, 3 lender price improvements were reported on MBS Live.
Sure appears that Ukrainian/Russian tension is building, which generates
demand for MBS (and lower rates). Buyers with a bit of risk tolerance
may want to see if further escalation ensues; those closer to closing
may want to lock up today's gains." -Ted Rood, Senior Mortgage Planner, tedroodteam.com

Today's Best-Execution Rates

30YR FIXED - 4.125

FHA/VA - 3.75%

15 YEAR FIXED - 3.25%

5 YEAR ARMS - 3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

The hallmark of 2014 so far has been a disconcertingly narrow range in rates. Too many market participants bet on rates going higher in 2014, and markets have punished that imbalance with a paradoxical move lower.

As of June, rates were officially lower year-over-year, but that's due to rates' path higher in 2013. The current path in 2014 remains sideways.

European markets continue to play a nagging role in the background, generally helping rates in the US remain lower than they otherwise might be.

From a wider point of view, we're in limbo, waiting for the first significant move away from the narrow range. A rally into late May stood a chance to act as this break, but rates have since returned to what were previously the lower limits of the 2014 range.

As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).

About the Author

A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators.
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